Global Inflation Synchronization

We study the extent of global inflation synchronization using a dynamic factor model in a
large set of countries over a half century. Our methodology allows us to account for
differences across groups of countries (advanced economies and emerging market and
developing economies) and to analyze commonalities in inflation synchronization across
a wide range of inflation measures. We report three major results. First, inflation
movements have become increasingly synchronized internationally over time: a common
global factor has accounted for about 22 percent of variation in national inflation rates
since 2001. Second, inflation synchronization has also become more broad-based: while
it was previously much more pronounced among advanced economies than among
emerging market and developing economies, it has become substantial in both groups
over the past two decades. In addition, inflation synchronization has become significant
across all inflation measures since 2001, whereas it was previously prominent only for
inflation measures that included mostly tradable goods.